July 31, 2014

Is Living on the Dole Bad for You?: Thursday Focus for July 31, 2014

At one point my grandfather was the richest man between Orlando and Tampa, and I figure that about $15K/year (in 2014-value dollars) of his money has been spent on me, one way or another, since my birth. That's a substantial dole to live on, and--needless to say--I am extremely grateful to my late grandfather and grandmother for giving it to me. But has this harmed me?

...a serious and worsening social blight among the less educated and less skilled, I favor instead... wage subsidies for low-skill work.... It is true that the choices of UBI recipients are less constrained than those of workers who receive wage subsidies.... The great virtue of a UBI is its directness and simplicity.... [But] my reading of the available evidence convinces me that a social policy that channels benefits through work and thereby encourages paid employment has important advantages over a UBI....

You might think that not having to work would free people... [for] potentially more rewarding activities. But life doesn’t seem to work that way.... In 2013, employed men averaged 6.43 hours a day on work and related activities.... Men without jobs... spent 19 extra minutes a day on housework, 11 more minutes on socializing, 9 more minutes on exercise and recreation, 8 more minutes on childcare... 6 more minutes on organizational, civic, and religious activities... an extra hour sleeping (for a total of 9.25 hours a day!) and two extra hours watching TV (4.05 hours a day!)....

You don’t need a paycheck to thrive. But for most working-age people, paid employment is the most reliable path to commitment, engagement, and a sense of purpose.... For so-called prime-age males aged 25-54, the labor force participation rate has fallen from 96 percent in 1970 to 88 percent today.... The rise of mass joblessness among the less skilled is a catastrophe.... Unconditional income support reduces labor supply. Perhaps not dramatically, but still the impact is going in the wrong direction. By contrast, wage subsidies... increase the attractiveness of work and boost labor force participation.... We may someday enjoy a post-work society of productive, creative leisure, but maintaining and expanding the underclass aren’t the way to get there.

As I look back, this "basic income" had three effects:

It allowed me to buy more stuff--largely expensive private school education when young, and more expensive houses and hence bigger bets placed on real estate when older.

It made me confident and hence a greater risk taker--it is much easier to embark on something that may be a high-wire act if you know there is a safety net down there.

I found myself under less pressure to make money early by doing boring things.

Would I be better off if that money had been channeled to me in the form of a wage subsidy--say, a dollar-for-dollar match for the first $750,000 I earned in the marketplace?

Well, it would seem to depend on how good my judgment is, isn't it? If my judgment is lousy, then I would be better off responding more to market forces--and on way to make me do more of that is to amplify the ample financial incentives that the market already provides. If my judgment is good--if I am already properly weighting financial, personal development, and lifestyle objectives--than conditioning the cash on market income is throwing yet another spanner into the works. Any judgment that wage subsidies are superior to a basic income would seem to me to entail a pretty strong presumption that people's judgments are, by and large, lousy.

Moreover, there are two additional considerations. First, what about the people who do not respond to the wage subsidy? They are making a big mistake. That tells us that their cognitive processing is very poor--which means that they are people who really could use some help, and who have been dealt a very poor hand in the game of life. If there is anybody for whom social insurance is desirable, it is them. And yet they do not benefit from a wage-subsidy program. Second, when people's judgment is poor, our usual response is to try to make it better: teach them, nudge them, set up societal systems in which the issues are presented fairly and clearly to make it easy to make good judgments, and hard to make ones that afterwards all will recognize as stupid. Replacing a UBI with a wage-subsidy program is not a nudge--it is more like being beaten with a club.

Milton Friedman was always on the side of (a) universal basic income, plus (b) education programs--of all kinds--to try to help people figure out how to think more clearly. The only edge that a wage subsidy program has over that combination that I can see is that a wage subsidy program has greater political traction in America today...

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Is Living on the Dole Bad for You?: Thursday Focus for July 31, 2014

At one point my grandfather was the richest man between Orlando and Tampa, and I figure that about $15K/year (in 2014-value dollars) of his money has been spent on me, one way or another, since my birth. That's a substantial dole to live on, and--needless to say--I am extremely grateful to my late grandfather and grandmother for giving it to me. But has this harmed me?